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Inflation: China shows an unexpected freeze on prices. Lack of growth?

Money / currency of PBOC or people's bank of china. One hundred CNY Chinese yuan bill with a flag of China. 100 rmb or renminbi, depicts Beijing economy system, public banking policy and interest rate

The latest data on Chinese inflation suggests that something is not working and that growth is far from that planned by the authorities.

China's annual inflation rate fell to 0.2% in June 2024 from 0.3% in the previous two months, remaining below market estimates of 0.4%.

It was the fifth consecutive month of consumer inflation, but the lowest figure since March, amid a fragile economic recovery. Food prices fell for the 12th month (-2.1% versus -2.0%), despite a sharp acceleration in pork prices during the Dragon Boat Festival.

Meanwhile, non-food inflation remained stable (at 0.8%), with a further increase in clothing prices (1.5% vs 1.6% in May), housing prices (0.2% vs 0.2%), health (1.5% vs 1.5%) and education (1.7% vs 1.7%).

At the same time, the cost of transportation continued to decline (-0.3% vs. -0.2%), as moves by some Chinese utility companies to raise service prices earlier in the year have had a limited impact. Core consumer prices, net of food and energy costs, increased by 0.6% y/y, as in May. On a monthly basis, the CPI fell 0.2%, the third time it has fallen this year, versus consensus of 0.1%.

Here is the relevant graph:

The worrying trend in inflation is accompanied by a real deflation at the level of production costs, also revealed today, which even show a drop, yet another, in production costs, and not even a little, -0 .8% month over month in June:

Yesterday we talked about the PBOC's intervention to counteract the excessive drop in interest rates on public debt, which is even unthinkable in Western countries, yet necessary in China to provide liquidity to the real economy rather than seeing it end up in safe investments, which, in China, after the real estate crisis, means government bonds or gold. However, the government wants these financial resources not to go into central government debt, but perhaps into local government vehicles or private ones, to encourage growth. However, you can take the horse to water, but you cannot force it to drink.

How do you say "liquidity trap" in Chinese?

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The article Inflation: China shows an unexpected freeze on prices. Lack of growth? comes from Economic Scenarios .

This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/inflazione-la-cina-mostra-un-gelo-sui-prezzi-inatteso-manca-la-crescita/ on Wed, 10 Jul 2024 08:00:02 +0000.